Making financial reports more attractive to international investors
How to speak the language.
As companies become larger, more diversified, and multinational, there’s an increased need for the globalisation of accounting standards and practices – an “international language” of accounting that speaks to stakeholders and investors.
“When an Australian company produces financial statements in such a way that it applies international financial reporting language, it enables investors to understand and trust the company more, and to have more confidence in it,” says Dr Yousef Shahwan, lecturer of accounting at the Tasmanian School of Business and Economics.
Dr Shahwan has made a career of researching controversial issues related to financial reporting and regulations, including corporate governance and accounting for intangible assets, and the potential impact of international standardisation on foreign investment.
“If we look at the example of China or the surrounding area, we see that the way business transactions are reported would be the most important factor for attracting investment, either domestically or internationally,” he says.
Dr Shahwan says that in the US, companies will produce reports for international users in XBRL (eXtensible Business Reporting Language), a global standard for defining and exchanging business information, such as a financial statement.
“A case study of the National Australia Bank (NAB) shows that the globalisation of its accounting practices had a significant positive impact on NAB’s reported profits, asset investments, and total assets between 1996 and 2016,” he says.
One stumbling block for Australia is that, unlike in nations such as Canada and the US, there is an added stage that complicates the process of trying to update accounting standards.
“The current standard-setting process in Australia involves consultations with stakeholders,” says Dr Shahwan. “This can be a real challenge for standard-setting bodies, because they’re trying to accommodate comments from stakeholders into submissions made to international standard-setting organisations.”
Dr Shahwan also has a strong research interest in corporate governance in Australian agribusiness – another area that has great potential to add value to Australian businesses through improved compliance and requirements.
“Currently, I’m working on a joint project that documents and evaluates how big agricultural companies listed on the ASX are considering corporate governance rules,” he says.
Dr Shahwan’s interest in this area was sparked by a 2017 article related to the Tasmanian fishery market.
“At the time, I didn’t know that I would end up in Tasmania. Looking at stock volume of the fishery market in Tasmania, from 1980 to almost early in 2010, there was not much improvement in fish stocking due a lack of attention to waste collection,” he explains.
“For Tasmania, that improvement was slightly disappointing, because if they’d done better in terms of their disclosure requirements and their accounts and planning, they could have had a much better outcome. They could have increased their production and expanded their export markets.”
Dr Shahwan’s research began with an analysis of more than 20 years of financial statements to see how Tasmanian fishery agribusinesses applied the codes of corporate governance in terms of transparency and audits, and how they have applied those required codes to their statements.
His research team also plans to interview managers inside the fishery plants and other stakeholders.
“It was found that agribusiness professionals have again underlined the need for Australian farms to become more ‘sale ready’ in order to attract institutional capital and investors to the sector,” he says.
“In particular, the farming industry is urged to step up financial reporting and corporate governance to attract foreign direct investments.”
Dr Shahwan says we need to revisit the corporate governance cycle, and look at how agribusiness in Australia is complying.
“The way Australia has tackled its corporate governance and disclosures in agribusiness has discouraged investment in Australia, and it has gone to countries such as New Zealand,” he says.
“Even though Australia has more land and greater resources, New Zealand is having more favourable outcomes. We can do much better.”